Obstacles On The Path To Recovery

Article by Martin Kenney

& Elizabeth

O'Brien

Introduction.

There are many obstacles that must be traversed by a

claimant or victim on his path to recovery that are fundamental

to the design of any asset recovery litigation. They

include:

A multi-jurisdictional complex of facts and legal

problems.

Disharmony in legal rules governing the provision of

access to documentation and information reposed in the hands

of third party capital market intermediaries who come to

handle or unwittingly launder the suspect

money.

Bank, fiduciary relation and company secrecy laws which

purport to frustrate attempts to access information leading

to the discovery of the whereabouts of stolen wealth.

The juxtaposition between apparently conflicting systems

of law.

Company law. The setting aside of the legal fiction,

company, is often a prerequisite to gaining access

to funds protected by this legal cocoon.

The law of trusts and agency can be abused in an attempt

to (at least) superficially distance the attribution of the

suspect funds, or in an attempt to place the funds into an

abstract, legal fortress.

The presumption that dealings with assets and money

through company, contract, trust

and other are all bona fide.

Time and money.

The foregoing does not represent an exhaustive list of the

difficulties and barriers that must be crossed. It does,

however, provide an introduction to the predictable

difficulties which the asset recovery expert will invariably

encounter. Having recognised the major obstacles, a strategy

can be developed accordingly.

Often, victims of fraud operate under the illusion that

recovering what has been taken is simply a matter of right and

wrong, black and white, "she took it - therefore she

must give it back." While there are examples of cut and

dried cases, in an increasingly technological age in which

international transactions and communications are commonplace,

the solving of a fraud case involves a lot more than

identifying the culprit. The road to recovery can be long and

arduous and may involve major setbacks. The processes of

firstly proving liability and secondly enforcing the obligation

are two distinct and often equally difficult ones. The authors

advocate plaintiffs to seek to invert the normal civil

litigation paradigm of resolving the question of liability

first - only to seek the enforcement of an award at the

end of the process. We believe that a completely inverted

approach is the most effective one in managing risk in the face

of serious fraud.

The importance of solid ground work, reliable evidence and a

proven legal foundation cannot be over emphasised. Nor indeed

can the potential financial burden of prosecuting an asset

recovery exercise which may run for long periods of time.

(See, Sections 16.0 and 17.0 - 'Financing

the Cost of the Asset Recovery Process' (U.S. and

Commonwealth)). These are all considerations which require

highlighting and attention.

Multi-Jurisdictional Mix.

Given the age in which we live, where electronic

transactions take milliseconds and where the ability to

communicate by means of the world wide web has changed the way

in which we conduct our lives, it is no surprise that the

experienced white collar criminal avails of this increasingly

border-diminished world to travel and move money with ease.

While for the most part jurisdictions which avail of the

benefits of trade with more developed countries have made

inroads in the area of accountability and transparency in

financial matters, a core group of 'tax-havens' or

relatively 'regulation-free' hotspots continues to

offer the tax conscious and the economic criminal alike, a safe

place in which to repose billions of dollars each year. This

'multi-jurisdictional' factor can make the task of the

victim of economic crime much more difficult than it would

otherwise be. Indeed, the addition of this factor can often

dissuade victims from seeking recovery.

Negotiating these obstacles requires a good knowledge of the

customs and laws of offshore havens and an understanding of the

bureaucracy which dogs these often small and somewhat

provincial jurisdictions. The value of cultivating close

relationships and sources in such places, both within the law

enforcement and political spheres, is high. Knowledge of how

these places operate and under whose or what influence is

helpful.

Bank and Fiduciary Relation Secrecy Laws.

The founding principle for banking confidentiality in common

law jurisdictions was outlined in the English House of Lords

decision in Tournier v. National Provincial & Union

Bank of England. 1 Lord Justice Bankes laid

down four principles governing when disclosure of a

banker/customer confidence may be made: (a) where disclosure is

under compulsion by law, (b) where it is in the interests of

the public to disclose, (c) where the interests of the bank

require disclosure, or (d) where the disclosure is made by the

express or implied consent of the customer.

Bank confidentiality has been taken a step further in

Switzerland, a confederation of 26 sovereign states, or

'Cantons'. The Swiss Confederation has no general power

to legislate on civil or criminal procedure. Each Canton

therefore has its own statute on civil and criminal procedure,

and they vary. Privacy and secrecy are highly valued in

Switzerland and access to information is limited. Certain

professionals (e.g., priests, lawyers, notaries, auditors and

physicians) are obliged, by law,2 to maintain the

confidentiality of facts which they learn in the course of

their professional conduct.

Similarly, Liechtenstein imposes criminal sanctions for the

breach of confidential obligations as proscribed by law. The

bankers duty of confidentiality, based on Article 14 of the

Liechtenstein Bankengesetz, prohibits bankers and

their agents and employees, from disclosing facts or

information with which they were entrusted in the course of

their profession. Such duty endures indefinitely. Breach of

Article 14 risks criminal sanction under Article 63.1 of the

Bankengesetz. Trustees and lawyers are similarly

restrained pursuant to Article 11 of the Gesetz über

die Treuhänder and Gesetz über die

Rechtsanwälte.

In 1976, the Cayman Islands joined the ranks of those

jurisdictions making the breach of the duty of confidentiality

a criminal offence with the passing of the Confidential

Relationships (Preservation) Law. This law purports to

criminalise the dissemination of "confidential

information" whenever disclosure occurs without either (a)

a court order or, (b) the explicit consent of the principal, or

bank customer, who has imparted information to his offshore

bank or trustee in the course of a transaction of a business or

professional nature. However, the attitude of the judiciary to

the interpretation of this law in the Cayman Islands has had to

move with the times, in recognition of the fact that justice

cannot be shackled by a piece of legislation that is frowned

upon by the developed world.

While the confidential information about the affairs of

persons doing business in and from the Cayman Islands is

required to be protected, the protection afforded by the law is

not absolute. Disclosure will be allowed where it is

appropriate to ensure that justice is done in disputes between

persons and where the enforcement of the criminal law and the

administration of justice - whether in the Cayman Islands or

overseas - requires that disclosure be allowed.

See, In the Matter of Ansbacher (Cayman) Limited

(No.2), Cause 69 of 2000 where the Court said:

"The law and policy of the Cayman Islands

recognises that the ends of justice and the requirements of

law enforcement towards those ends, can assume many different

forms and the requirements will vary from State to State.

Cayman Islands public policy nonetheless requires, and the

local laws are designed and construed, so as to afford

assistance in all appropriate cases. The disclosure of

confidential information has been allowed and directed by

this Court in numerous cases, involving many different

countries and many different legal issues and

circumstances." Per Smellie J.

Accordingly, it is recognised that the duty of secrecy owed

by a bank to its customer is a duty subject to qualification,

as is classically stated in Tournier's case [1924]

1 .K.B. 461 at page 473 per Bankes LJ:

" - - What are the qualifications [which]

the contractual duty of secrecy implies in the relation

of banker and customer? - - In principle, I think the

qualifications can be classified under four heads; (a) Where

disclosure is under compulsion by law; (b) Where there is a

duty to the public to disclose; (c) Where the interests of

the bank require disclosure; and (d) Where the disclosure is

made by the expressed or implied consent of the

customer."

And at page 481, per Scrutton LJ:

"I think it is clear that the bank may disclose

the customers' accounts and affairs to an extent

reasonable and proper for its own protection as in collecting

or suing for an overdraft or to an extent reasonable and

proper for carrying on the business of the account, as in

giving a reason for declining to honour cheques drawn or

bills executed by the customer, when there are insufficient

assets; or when ordered to answer questions in the law

courts; or to prevent fraud or crimes."

And finally, in words which serve to clarify and explain the

third of Lord Justice Bankes' qualifications, at page 486

per Atkin LJ, the court said:

" - - I think it is safe to say that the

obligation not to disclose information such as I have

mentioned is subject to the qualification that the banks have

the right to disclose (confidential) information when, and to

the extent to which it is reasonably necessary for the

protection of the banks' interests, either as against

their customer or as against third parties in respect of

transactions of the bank for or with their customer or for

protecting the bank or persons interested or the public

against fraud or crime."

The Commonwealth of the...